Analysys Mason: Operators in Eastern Europe confront same challenges as in the West
Sustained growth in mobile service revenue in Central and Eastern Europe will become a thing of the past, as market maturity, and competitive and regulatory forces squeeze operators' revenue. In our recently published report, "The Central and Eastern European telecoms market: forecasts and analysis 2012–2017," we predict that mobile service revenue in the region will peak in 2015 and will decline thereafter.
Mobile telecoms service revenue in Central and Eastern Europe grew at a CAGR of 4.7 per cent between 2007 and 2011, to reach €46.7 billion. However, we expect that it will slow to 1.0 per centbetween 2011 and 2015, and decline at a CAGR of –0.6 per cent between 2015 and 2017.
Our report examines 14 countries individually and the region as a whole, but because the three developing countries (Russia, Turkey and Ukraine) display different characteristics from the remaining 11 countries (the 10 that are members of the European Union (EU10) and Croatia, which will probably join in 2013), we also consider these two sub-groups separately in order to draw meaningful conclusions from the data. The EU10 include Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.
Figure 1: Mobile service revenue at constant (2011) exchange rate, and index of mobile service revenue by region and Central and Eastern European sub-group, 2011–2017 [Source: Analysys Mason, 2012]
Russia, Turkey and Ukraine together accounted for 59 per cent of the region's mobile service revenue in 2011, and so the overall shape of the region's revenue curve is largely determined by changes in these markets. Growth has been strong in these countries – population penetration of mobile handsets grew from 114 per cent in 2009 to 119 per cent in 2011. However, even these growth markets are reaching saturation, and handset penetration will peak at 123 per cent in 2015.
Mobile service revenue has been declining in the EU10 countries and Croatia since 2009, and we expect the overall growth trajectory for these markets to resemble that of Western Europe, where similar forces are at play. The overall characteristics of these 11 mobile markets are as follows.
- Saturation in handset penetration. We have already seen evidence of declining or reduced rates of growth in handset penetration, and this will continue as handset ownership becomes consolidated. Smartphone adoption drives this trend, as high value cross-network bundles eliminate the need for multiple-SIM ownership.
- Increased competition in the mobile voice market. Many regulators are actively encouraging MVNOs--MultiPlus (Croatia) and Telemach (Slovenia) have launched this year. Spectrum auctions indicate that new operators are set to enter the market in Bulgaria (4G COM), the Czech Republic, Latvia (Baltcom) and Slovakia.
- Threat from mobile OTT services. Both voice and messaging revenue are under threat from IP-based services such as WhatsApp Messenger. Regulation may be tough on operators trying to restrict usage of these applications.
- Increased data revenue fails to compensate for the decline in voice. Mobile non-voice revenue will increase from €3.9 billion in 2011 to €5.2 billion in 2017 (CAGR of 5 per cent), but this is insufficient to offset the €4.0 billion loss in mobile voice revenue during this period.
- EU directives reduce termination revenue. The EU10 (and Croatia) are all subject to EU recommendations on reducing mobile termination rates. Termination revenue will almost halve from €3.1 billion in 2011 to €1.6 billion in 2017.
Therefore, mobile operators need to find creative ways to thrive in these challenging market conditions. Rolling out 4G will give opportunities to boost mobile broadband and handset revenue by charging premium rates in the early years, and faster networks will mean that mobile can offer a real alternative to fixed broadband. In the long term, mobile operators need to rebalance their tariffs to order to extract the maximum value from data users--tiered-pricing structures will enable operators to monetise the higher-end smartphone users while also encouraging entry-level service adoption.
Mobile is the dominant technology in Central and Eastern Europe (accounting for 64 per cent of total telecoms service revenue in 2011 as compared to 49 per cent in Western Europe), and so conditions in the mobile market are of vital importance to the entire telecoms sector.
Hilary Bailey has worked for Analysys Mason for more than 20 years. She specialises in quantitative forecast modelling and is a key contributor to the Core Forecasts research programme. She manages the Telecoms Market Matrix, which tracks and compares telecoms metrics and market shares for all the major fixed and mobile operators in Europe. Hilary has a degree in Economics from the University of Bristol, and an MPhil in Economics from the University of Cambridge.